Earnings Call: Q3 2019

Oct 30, 2019

Good morning, and welcome to Molina Healthcare's Third Quarter 2019 Earnings Conference Call. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Julie Trudell, Senior Vice President, Investor Relations. Please go ahead. Good morning, and thank you for joining Molina Healthcare's Q3 2019 earnings call. With me today are Molina's President and CEO, Joe Zabradsky and our CFO, Tom Tran. The press announcing our Q3 earnings was distributed yesterday after the market closed and the release is now posted for viewing on our Investor Relations website. A replay of this call will be available shortly after the conclusion of the call through November 6. The numbers to access this replay are in the earnings release. For those who listen to the rebroadcast of this presentation, we remind you that the remarks made herein are as of today, Wednesday, October 30, 2019, and we have not been updated subsequent to the initial earnings call. In this call, we will refer to certain non GAAP measures. A reconciliation of these measures with the most directly comparable GAAP measures can be found in our Q3 press release. During our call, we will be making forward looking statements, including statements about our growth prospects, 2019 guidance and our long term outlook. Listeners are cautioned that all of our forward looking statements are subject to certain risks and uncertainties that can cause our actual results to differ materially from our current expectations. We advise listeners to view our risk factors discussed in our Form 10 ks Annual Report for 2018 filed with the SEC as well as the risk factors listed in our other reports and filings with the SEC. After the completed prepared remarks today, we will open up the call to take your questions. I would now like to turn the call over to our Chief Executive Officer, Joe Zabrzecki. Joe? Thank you, Julie, and thank you all for joining us this morning. Late yesterday afternoon, after we issued our press release for the quarter, we learned the outcome of the Texas Star Plus RFP award. Before we discuss our quarterly results, we will first provide you with the information we have at this time. We were awarded contracts in 2 regions, our existing Hidalgo region and one new region, the Northeast region. Given the real time nature of this information, a full analysis of the membership and revenue impact that is likely to occur in late 2020 is currently underway and will be completed shortly. We are naturally very disappointed in this initial outcome and are currently seeking more information from HHSC with respect to the awards. We will then decide on the course of action in exploring all of our options relating to the decision. Now let's turn the discussion to our Q3 results. Last night, we reported earnings per diluted share for the Q3 of $2.75 We reported pre tax earnings of $233,000,000 and after tax earnings of $175,000,000 resulting in pre tax and after tax margins of 5.5% and 4.1% respectively. Based on our 3rd quarter and year to date performance, we are raising our full year earnings per diluted share guidance to a new range of $11.30 to $11.55 for the full year. I will now provide some detail on our performance through the 1st 9 months of the year. Premium revenue was $12,100,000,000 and in line with expectations as our membership remains relatively stable, our rates remain sound and our retention of at risk premium continues to improve. Our medical care ratio was 85.7%. Despite some cost pressures in select markets, this MCR level demonstrates our continued ability to manage medical costs effectively, improve our claim payment practices and execute other profit improvement initiatives. The G and A ratio was 7.6%, also in line with expectations, as we efficiently managed our resources to provide excellent service to our members and providers. We continue to harvest dividends from our operating subsidiaries, resulting in nearly $800,000,000 of excess capital at the parent company after paying down debt. We have a very strong balance sheet and a simplified and efficient capital structure. We have attained a fairly attractive earnings profile. Our medical care ratio for the 1st 9 months of the year remains on track at 85.7% as the portfolio performed slightly better than expected. Total company after tax margins of 4.5% are supported by 3% in Medicaid, 7% in Medicare and 12% in Marketplace. We have produced average quarterly earnings per share of over $2.90 with minor seasonal fluctuations. We have approximately $800,000,000 of free cash, which when combined with undrawn debt creates a $1,700,000,000 investment capacity. And for the full year, we are on track to report EBITDA of approximately $1,200,000,000 or a 7% EBITDA margin. I would like to provide some comments with respect to our 2020 outlook. At our Investor Day, we forecasted an organic premium revenue growth rate of 7% to 9% for 2020, which now may change with the news on Texas. However, many of the elements related to that growth rate are still intact. Medicaid growth in 2020 will reflect the annualized impact of the RFP awards that we implemented this year, along with some expected Medicaid expansion. In Medicare, we expect growth in our D SNP product from the expansion of our existing footprint and entry into 2 new states, South Carolina and Ohio. In Marketplace, our analysis suggests that both our rates and broker compensation structure are highly competitive. Taken together, these factors give us confidence in our ability to grow membership. Inorganic growth prospects will continue to be an important dimension of our long term growth strategy because of the positive operating leverage resulting from membership growth and the synergies derived from our proven turnaround skills. 2 weeks ago, we announced that we signed a definitive agreement to acquire YourCare Health Plan, a non for profit plan in upstate New York. YourCare services 46,000 Medicaid members in 7 counties in Western New York, contiguous to our Syracuse based upstate plan. This transaction, which we expect to close in early 2020, is indicative of the type of bolt on tuck in acquisitions that we discussed at Investor Day. Turning now to our updated full year 2019 earnings guidance. Our year to date performance gives us confidence in raising full year earnings per share guidance to a range of $11.30 to $11.55 This earnings per share guidance implies an after tax margin of 4.3% to 4.4%, supported by after tax margins of approximately 3% for Medicaid, 7% for Medicare and 11% for Marketplace. Before turning the call over to Tom, I would like to say another word about the Texas news. If in fact this development does create a future revenue shortfall, bear in mind that this team has demonstrated the ability to overcome many challenges. The team has grown margins to industry leading levels even in the face of a significant revenue decline in 2019. We are committed to meeting the challenge again and we'll continue to pursue the revenue opportunities that lie ahead. Now, I will turn the call over to Tom Tran for more detail on the financials. Tom? Thank you, Joe, and good morning. We report 3rd quarter's earnings per diluted share of $2.75 supported by net income of $175,000,000 and an after tax margin of 4.1% with premium revenue of $4,100,000,000 Let me provide some additional detail on the quarter. My commentary will be focused on a sequential comparison. The consolidated MCR for the Q3 of 2019 was 86.3% compared to 85.6% in the Q2 of 2019, primarily due to the seasonality of the marketplace MCR. Prior periods reserve development in the quarter was negligible. The G and A ratio for our Q3 of 2019 improved by 20 basis points to 7.6% compared to 7.8% in the Q2 of 2019. The improvement in our G and A ratio was mainly due to the sequential increase in revenue. Interest expense was flat at $22,000,000 compared to the Q2 of 2019. Let me provide some additional commentary on our performance in the Q3 by line of business. In the Medicaid business, our MCR for the quarter was sequentially flat at approximately 88% producing an after tax margin of 3.4%. These results were in line with our expectations. We continue to produce our targeted margins in Medicaid while experiencing isolated medical cost pressures in certain markets, primarily due to acuity mix shift, benefit carvings and some large claim activity. We fully expect that these cost pressures will continue to be managed and will ultimately end up in our premium rates. Our Medicare business comprising of our DSNP and MNP products for the quarter continued to perform well and was in line with our expectation. The MCR for the quarter of 85.6% was fairly stable compared to 85.2% in the Q2 of 2019 producing an after tax margin of 6.4%. More specifically on Medicare, we continue to demonstrate excellence in managing high acuity members by providing access to high quality healthcare at a reasonable cost. This includes our market leading management of long term service and support benefits which are embedded in our MMP product. We continue to see the result of our quality and risk adjustment efforts as our Medicare risk scores are becoming more commensurate with the acuity of this population and risk adjustment revenue has increased. And our attractive Medicare margin profile allow us to reinvest in additional benefits, which should help us maintain our product competitiveness as we position this business to growth in 2020 beyond. Finally, our marketplace business continues to perform well and is generally in line with our seasonal expectation as we reported MCR for the quarter of 71.2% compared to 67.2% in the Q2 of 2019. As a reminder, the margin profile of the marketplace business allow us to ease up on raise funds for 2020, increase value added benefits and offer more competitive commissions so we can grow membership next year at a lower, more sustainable, but still attractive margin. Turning to our balance sheet, cash flow and cash position for the quarter. Our reserve approach is consistent with prior quarters and our reserve position remains strong. Days in claim payable represent 50 days of medical cost expense compared to 40 days 8 days in the Q2 of 2019 and 53 days in the Q3 of 2018. The sequential increase in days in claim payable is primarily due to seasonal factors. As of September 30, 2019, our health plans had total statutory capital and surplus of approximately $1,800,000,000 which equates to approximately 3 35 percent of risk based capital. We reduced the outstanding balance of the convertible notes by $55,000,000 during the quarter $240,000,000 since the beginning of the year and only 12,000,000 of the convertible notes remain outstanding and will be redeemed in early 2020. Capital deployment actions have result in lower interest expense, a gain on repayment of the convertible notes and a lower share count on a fully diluted basis in the quarter which decreased by 6% to 63,600,000 share when compared to the same period in 2018. Operating cash flow for the 9 months ended September 30, 2019 amount to $398,000,000 and is higher year over year primarily due to the timing of government payments. Shifting to our outlook, we raised our full year 2019 earnings guidance to a range of $11.30 to $11.55 per share from a range of $11.20 to $11.50 This implies a 4th quarter range of $2.50 to $2.75 This concludes our prepared remarks. Operator, we are now ready to take questions. The first question comes from Scott Fidel of Stephens. Please go ahead. Hi, thanks. Good morning. First question, just if you can maybe expand a little bit on the Medicaid book. Maybe just sort of discuss how many markets and geographies, products you're seeing that? And then sort of what type of rate traction you're seeing around some of those issues right now? Sure, Scott. I would say the cost pressures that we're experiencing in various markets come across 3 dimensions. 1, we did see in the quarter some aberrant and anomalous large case activity, which will abate. 2nd, we have seen an acuity mix shift due to some redetermination efforts, particularly in the state of Ohio. And those are primarily the reasons for the cost pressures. We believe that ultimately acuity mix shift ends up in rates. And in fact, the State of Ohio has been very reasonable and rational in rate discussions. And we believe that normal operating protocols such as utilization control, care management and looking at our network contracts harder will arrest some of the large claim activity. So there were pressures in various markets. Some of the behavioral carve ins actually caused some rate pressure. You're never sure you're getting the right capitated rate when a benefit gets carved in. So we certainly saw some behavioral cost pressure in Washington that will end up in rates. So acuity mix shift, benefit carvings and some large claim activity, but all very manageable as evidenced by a very flat sequential Medicaid managed care ratio of 88%. Got it. And a follow-up question, just I guess sort of related, maybe not just around the trends on the reserve development side. And I know you mentioned you sort of had negligible reserve development in the quarter. I know you guys have had some pretty hefty development sort of trending over the last, let's call it, 4 to 6 quarters. So maybe sort of just update us on sort of the reserves and how you feel the adequacy is at this point. Did the reserve development get impacted by to consider as well just around reserve development trends? Thanks. I'll take it to Tom in a moment, but I practices that we undertake have remained consistent. I would say in the 3rd Q4, your prior year reserve development should abate. Last year, I thought was an exception. We had some reserve development in the Q4 off the prior year. I think that was an unusual phenomenon. So the fact that reserve development is over $100,000,000 for the year on a pre tax basis and as abated here in the 3rd 4th quarter is not unusual. Tom, anything to add? No, nothing more to add to that, Joe. Our reserve practice remain very consistent. We feel that our reserve balance is very strong. You can see DCP have gone up 2 days and none of these issue on the cost pressure you see there M and A into any particular issue for our reserve balance at all. Okay. Thanks. The next question comes from Peter Costa of Wells Fargo. Please go ahead. Good morning. Question about Texas. Your loss ratio in Texas is higher than some of your other loss ratios when we look at the government programs loss ratio. But it's hard to tell given the mix of higher acuity business that you might have in Texas, whether that's more profitable or less profitable than average. I guess another question is, is the contracts that you stand to lose more profitable or less profitable than your average profitability? And then the second question, just what was it that gave you the confidence at the Investor Day that the 7% to 9% organic growth rate would be there if you sort of weren't sure about the Texas result at that point in time? Let me answer the second question first. To be clear, at Investor Day, we said that the 7% to 9% revenue forecast for 2020 assumed status quo in Texas. So it didn't assume any increment or decrement due to a gain or loss. We're very, very clear on that point. So now as I said in our prepared remarks, as we redo our forecast for 2020, if this award sticks and it incepts on September 1, we would therefore adjust the 7% to 9% to allow for that 4 month revenue shortfall in Texas. Tom, you want to answer the question about profitability? Sure. We obviously do not petition of the population in Texas is generally higher because of the significant portion of ABD and MMP population in that state. So almost by nature, it's a much higher revenue PMPM, if you will. So with that, generally, we run the text that you saw, we disclosed that at a 91% MCR in the press release. However, the business is profitable. Overall, our Medicaid business as you know hovering around 3% plus or minus on an after tax. So in some state it may be less, some state may be more than that midpoint. So but the business there is profitable, albeit the fact that it may be slightly less than the midpoint because of a high acuity of the nature of the population. Thank you. The next question comes from Josh Raskin of Nephron Research. Please go ahead. Hi, thanks. Just want to follow-up on a comment that you made, Joe, with the first question around Texas. I think you said that you'll explore all your options. And I want to make sure, is that just with regarding protests and Texas specifically? Or is that a broader Molina Healthcare commentary around as you kind of rethink about the long term? That was meant to refer to exploring our options in Texas. There's 10 business days to file a protest. That's usually routine in these types of matters. But I was referring to exploring all of our options to review the scoring on the Texas awards and then to the rights that we have to pursue an additional award, we would pursue vigorously. Okay. Which I guess leads to my second question, which is, you talked last quarter around long term targets of 10% to 12% revenue growth still being consistent with your views long term understanding that 2020 won't be in that range and EPS targets of 12% to 15%. Does and I know you don't have the scoring, so you don't know exactly what happened in Texas specifically, but is there anything that's occurred sort of with that Texas where you guys will have to take a step back, rethink long term targets, rethink Molina's long term strategy or anything else in terms of just overall views for the company? Managed Medicaid, duals, high acuity, we do this really well. We're disappointed in the Texas award and we'll look at the scoring and as I said, we'll pursue our rights. But nothing changes in our long term outlook for the attractiveness of the business we're in or the target margins that we've outlined for you. There's an inherent growth rate in this business that is very attractive as well. It produces significant excess cash flow. And although we're disappointed in this award, we'll reset our 2020 numbers and we'll grow off of those and profit. Okay, perfect. Thanks. Thanks. The next question comes from Justin Lake of Wolfe Research. Please go ahead. Thanks. Good morning. Just one follow-up with a couple of questions on Texas. First, in terms of the you've got a pretty big exchange footprint there, Joe. I would assume the good news is it looks like your Star footprint is pretty similar to your Star Plus footprint. So is it fair to say that even if you were to lose the regions that in the announcement in Star Plus, you would still have enough scale to run a successful exchange strategy there so that you wouldn't need to exit the exchanges in Texas in any material way? The case. We have a lot of our exchange membership is in Dallas and Houston. We've proven in New Mexico that you can run a really profitable exchange business without being in Medicaid. And as you suggested, we still have the STAR CHIP contract and we think we have enough network girth and scale to participate in the marketplace business going forward. And the Texas marketplace business has been profitable and an attractive growth opportunity for us. Great. And then in terms of the losses, I mean, I know you're still going through the numbers. I've come up with something estimating close to just under $1,000,000,000 of revenue that this low premium that this looks like. Again, no need to comment on that. But just I know you talked about Texas in terms of the potential for deleveraging on the SG and A side if this were to go against you. And I just wanted to kind of follow-up on that in terms of if that number is in the right ballpark or you do lose $1,000,000,000 of revenue, do you think you could offset that SG and A and still hit your targets? Or do you think that would also be a reset above and beyond just the margin contribution that's at risk here? Various scenarios on what this might mean for revenue. But I would say the number that you articulated is certainly in the neighborhood of what could happen if we kept everything we have in Hidalgo and the Northeast gets split, let's say, evenly between 2 players. Those numbers are in the right neighborhood. But stranded overhead is certainly a phenomenon in this business or just the fixed cost nature of the business. But we don't tolerate stranded overhead here and we've proven that in 2019. If you recall in 2018 with the Florida and New Mexico losses, we said we had north of 4 north of 4% margins across the board in this business, we've proven that we don't allow stranded overhead. We'll get at the fixed cost when the revenue disappears and we'll restore ourselves to our target margins. Great. Thanks for the color. The next question comes from Kevin Fischbeck of Bank of America. Please go ahead. Great, thanks. I wanted to ask about the exchanges. You've had a couple competitors talk about their bid strategy and their expectation for margins for next year kind of coming down. And at least one of them specifically saying that their view about the minimum MLR really was a main reason why they were doing that, but they're operating at much lower margins than you're operating at. Just wanted to just kind of recheck with you and make you see what your thoughts were about whether that at all is a barrier to growth either next year or in the next couple of years in certain markets. Just trying to understand why you're into higher margin and not seeing the same potential cap to growth? Well, the first thing I would say Kevin is it's obvious that 2018 2019 have been very profitable years for us in the marketplace and 2017 was quite the opposite. So when 2017 rolls off the 3 year average in 2020, that will certainly put certain markets up against the minimum MLR. The other thing I would say is it depends on how your portfolio performs. Averages can be misleading. It really depends on how your individual properties are performing. We have some that are performing really well and others less well. And so we will bump into the minimum MOR probably in a few markets, but we certainly considered that when we filed our prices for 2020. We certainly considered that when we were loading in additional value added benefits to put value into the product and then paying rebates. And we took all that into consideration as we filed our rates for 2020 and our preliminary analysis now that everybody's rates are public is that we have very competitive positions number 1 and number 2 in about 75% of our key markets and our flagship silver product and our bronze product, which is the products that we want to be competitive. So we're still feeling really good about our growth prospects in marketplace for 2020. As a reminder, we said we're going to grow the business, albeit at a lower sustainable and still attractive margin. And you said a couple of times on the call today that your broker compensation is also, I guess, strong. Is that a change this year that did you do something differently? Are you paying more now in 2020 before 2020 than you have in the past? Or is this just a comment that you've consistently been doing this? Faye, we are paying market now. We are paying more, but we're paying market. We weren't competitive on our broker commissions in a few markets last year and we've corrected that. So although we're paying more, we're not paying above market, we are now paying market. And is there anything that you can kind of draw or share with us about that dynamic like in those markets where you're paying below, any view about what that means to go from below market to being in market? Well, I mean, as you know, about 50% of the business comes through .gov and the other 50% comes through brokers. And brokers want to be paid market commission. So we believe we'll have good broker loyalty. We have a strong network. And now that we're paying market commissions, it should enhance the growth rate. Okay, great. Thanks. The next question comes from Steven Tonneau of Goldman Sachs. Please go ahead. Good morning, guys. Appreciate all the color, especially this early on the Texas RFP. And I guess, just wanted to follow-up on kind of the comments on stranded overhead. Joe, that was helpful. But I guess, is it sort of fair to expect the earnings impact will be closer to the direct loss of what you're getting today as opposed to something larger than like the state makes available sort of financials for all the companies and I guess the direct impact somewhere in the ballpark are like 5% of EPS if we're looking at all that right using margins in the last reported fiscal year. So is that what you'd manage to kind of just losing that direct impact? Or should we actually think, well, even if you cut some stranded overhead, the impact could be greater for whatever reason? I think I understand your question. But as I stated previously, certainly, the margin, the fully baked margin on the product, on the revenue that's lost will disappear. And as I mentioned before, there will be fixed costs that will then become stranded, but we don't allow that to happen. And we've demonstrated that in 20 19. We gave you at Investor Day initial estimates of maybe $40,000,000 to $50,000,000 of stranded overhead due to the New Mexico and Florida losses. And if you just look at our G and A ratios today, look at our margins today, I mean, it all becomes fungible at some point. But we've managed our G and A ratios really, really well through this dynamic and we would be disciplined enough to do that yet again in late 20 20 when this revenue phenomenon hits. Perfect. Thanks. And then maybe one for Tom. Just in terms of the guidance revision, two questions on it. One, could you confirm the level of pure performance EPS that's implied there? And the other was more mechanical, just the guidance hike on investment and other income, any reason to think that's not sort of a 100% flow through to earnings? In terms of peer performance guidance, I think what you're referring to is, is there any sort of restructuring costs or any kind of gainloss on convertible, if that's what you're referring to. And our EPS that we provided is all in, all of those items are in, okay. So in other words, we have roughly about a $0.12 of year to date net gain from the redemption of the convertible. So that's in the $11.30 to 11.55 Okay, great. And I'm sorry, the investment and other income piece? Investment income, yes. I mean, certainly, we have provided guidance with high investment and other income. That's a combined 2 items there. And that's we have seen a little bit higher investment income in the Q3. So that's why we upped the guidance for the full year. And does that flow through 100%? Was just what I wanted to understand or should we be assuming that maybe with the other income part of that, the flow through to earnings is not 100%? The EPS, 100%. Yes. Okay. Thank you, guys. Appreciate it. The next question comes from Charles Rhyee of Cowen. Please go ahead. Yes. Hi, good morning. This is Cal Sternic on for Charles. Just recognizing that you guys are fresh off of the Texas announcement and still working through your strategy, how are you thinking about your appetite for M and A going forward just in the context of the YourCare acquisition and maybe some of the additional capital you'll have from pulling out of the Texas subs? And then just more generally on M and A strategy, do we think of M and A activity as being biased towards a business like Medicaid or Medicare? Thanks. Sure. First and foremost, the best use of our excess capital is to fund organic growth. We hold about 10% of premium as regulatory capital. And the levered and unlevered returns on equity are superb. 2nd, we have a very, very capable M and A team. We are going to remain very disciplined. We will look for opportunities in our existing markets and in greenfield markets in our core products, particularly Medicaid, high acuity and duals and probably not traditional Medicare Advantage. So we're going to stay very disciplined to our core product line. We really do seek out underperforming businesses because of our proven turnaround skills. We can harvest those performance based synergies for our earnings stream. And that's a very, very attractive use of our human resource So we're going to remain very disciplined. We still think there's opportunities out there. There's orphaned plans. There's provider owned plans. There's 501c3s. And we are scouring the universe for attractive opportunities to deploy our capital to accrete earnings per share. Great. And I appreciate the commentary on the marketplace growth rates. Recognizing that we're still early in the enrollment period for Medicare, I'm just wondering if you could talk about any visibility for growth there next year? On Medicare? Yes. The question is on Medicare. As you know, Medicare is primarily centered around the DSNP product and we have expanded footprint. We have entered into 2 new markets. So we expect to have membership growth in 2020. We do have some visibility against our competition now and we feel that the product will grow in 2020. Thank you. The next question comes from Steven Valiquette of Barclays. Please go ahead. Great. Thanks. Good morning, everybody. So in Texas, I know you don't have the scoring yet, but breaking down the awards by region, if we look at the fact that you lost in Dallas, Harris, El Paso, Bexar, Jefferson, but then you actually won brand new business in the larger MRSA Northeast region. I'm just curious, is there any really anything high level that jumps out to you on what may have driven the new regional win that was different mechanically than the factors that maybe in your mind may have drove the losses in the other regions. So tied into that, is there any silver lining there worth pointing out with that one new win that might help you in the protest process as well? I know it's kind of preliminary and high well you don't have the scoring, but just curious if anything jumps out to you. Thanks. The answer is no, not at this stage. Obviously, the news is 12 hours old and the scoring as you suggested has not been made available. But those are very legitimate questions and questions we will be asking. What did we learn about the scoring and the reasons we lost and why were we successful in a brand new region for us. So no, we don't have any information at this time, but we will be seeking answers to those questions and then pursuing our rights that we have under our contract. Okay. All right. Maybe I'll follow-up offline with that in more detail later. Thanks. Sure. You're welcome. The next question comes from Matthew Borsch of BMO Capital. Please go ahead. Yes, I'm just curious about the episodes of MCR pressure in the Medicaid business. Is that something that I think you'd made some allusions to rate lag in the last call, but it wasn't particularly a factor. What's been the timing of this emerging and relative to how the impact is played out? Is that something that was sort of accelerating into the back part of the Q3? Or how would you characterize it? I would characterize it as somewhat accelerating throughout the year. And I want to be very clear, when benefits get carved into a program, you do your best to understand the capitated rate you're getting for that benefit. Sometimes it's right and sometimes it's not sufficient. So we've seen that in Washington with respect to the behavioral carbon. We've seen it in Ohio with respect to the carbon of the behavioral benefit that took place over a year ago and the acuity mix shift that has occurred in their redetermination efforts. So rates always do lag trend, but the good news is that our customers have been very rational and reasonable in understanding these cost pressures. And they have been included in recent rate discussions. And in fact, we had a mid year rate increase in Ohio to offset some of this pressure. So whether it's large claim activity, which is aberrant, whether it's the acuity mix shift, whether it's a carved in benefit, this is just managed care dynamics and can be dealt with through operating protocols, utilization controls, network management and the like or in rate efforts. And the fact that we're still producing high 80s MLRs in the Medicaid business, 88% flat sequentially 2nd to 3rd quarter, I think is testimony to the fact that there's a lot going right in the portfolio even though we're seeing pressure in some isolated places. Joe, if I could just, if we back up and look at the broader landscape of plans in Medicaid, seeing pressure in multiple markets. Is there any I realized that the eligibility redetermination common factor, but it sort of feels a little bit like the rate development has sort of turned a little bit stingy coming into this year. And now we're going through what's likely to be some bout of corrections and certainly extremely helpful that you have reasonable business partners in most cases. But is that a mischaracterization? It's a legitimate question, but I think it's maybe slightly mischaracterized. The rate discussions have been reasonable rational rates appear to be actuarially sound. And anytime you go through, as I said, the phenomenon of a benefit carve in or a significant shift in acuity, you get these little rate shocks, which then quickly correct. I think the good news on redetermination is something we ought to really focus on. In this business, there's been a lot of discussion over many years as how does the managed Medicaid business respond in economic cycles. We don't have to model it anymore, we know. And the fact that the Ohio economy is very strong, the fact that expansion members who actually do work and make some money are making more money now and going back to work that puts pressure on membership roles makes an acuity mix shift happen on your existing population, but then it's correctable in rates. That's actually a very positive phenomenon. The fact that the good economy is creating pressure in one state, but then it's correctable through rates quickly is a very positive phenomenon. We no longer have to conjecture and guess how these businesses perform through economic cycles we know. Right. Okay. Thank you. The next question comes from Sarah James of Piper Jaffray. Please go ahead. Thank you. On Friday, Texas HHSC announced that Kay Molina took over as Head of Medicaid Procurement, which is unusual to do just before an award. And in general, there's been a good amount of churn on who's running this procurement for Texas. So just wondering if there's any color you can share on how churn in this department could have influenced the procurement environment and if it means that there's actually going to be a different team evaluating the STAR RFP and scoring? Sarah, it's I hesitate to comment on what's going on in the inner workings of our customer. Certainly, the churn or the turnover phenomenon you suggested is real. Everybody knows it. We know it. But I can't speculate at this point on what impact that might have had on the scoring. When we get the scoring, we're going to do what we normally do. We're going to evaluate it very thoroughly. We will go through lessons learned and what we could have done better, but then we're going to pursue our rights that we have under our contract to if we think we were not scored accurately or favorably, we will pursue our rights. But I can't speculate on what might have happened inside the department that created the scoring that impacted us. Okay. Given where we're now on the top line for 2020, is there any additional flexibility that you have in the timing of investment spend or bringing forward any of the outsourcing opportunities time wise, so you can influence the pacing of SG and A improvements to offset some of the top line headwinds? As we continue to work down the path of developing a 2020 plan, certainly, SG and A Management is certainly something that's on our radar screen. We're not done yet. We think there's more efficiency in our operation that can be gained. But most of the large scale outsourcing that is going to take place here has already occurred. We did a very large scale IT outsourcing last year as you know. We outsourced some of our very specialized and esoteric utilization management capabilities. We outsourced our nurse advice line earlier this year. So most of the large scale outsourcing has been done, but not all of that is in the current run rate and that mostly that should be fully in the run rate in 2020, if that was your question. Great. Thank you. The next question comes from Dave Windley of Jefferies. Please go ahead. Hi, good morning. It's Dave Styblo in for Windley. Joe, the team has done really a commendable job of extracting costs from the business, I think, to the tune of $350,000,000 to $400,000,000 by the end of this year. And you guys have talked about another $350,000,000 to $400,000,000 of savings opportunities in the future. I'm curious if any of those savings were earmarked for opportunities in Texas that might not now have an opportunity to be addressed because of the shrinking footprint for the RFP outcome? It's a fair comment. I mean, without parsing the $300,000,000 to $400,000,000 of opportunity, guess you could just fair to say that it's evenly spread across our book of business, across our products and across our geographies. So yes, if part of that was earmarked for whether it's G and A savings, payment integrity savings, care management savings that whatever would have happened on the revenue that we lost will not happen. So I think that's a fair comment. But we're not going to start allocating our profit improvement opportunities to individual states and products. But it's a fair comment. Okay. And then and stepping back, I know you guys have started to talk about the revenue growth opportunities and have done that for a couple of quarters now with across the different businesses. I'm curious, are there any RFPs that are larger in scale that can add chunks of revenue coming up in the next 12 to 24 months that on your horizon that you guys have visibility on that that you're willing to disclose that you'd be interested in participating in from a bid perspective? We have a fair number of what I'll call special situations, which at this time are still confidential that we're working on. As you know, we submitted a response to the Kentucky RFP that's in process and we're told that will be announced sometime in the month of November, so imminently. And the other states we showed you at Investor Day, while RFPs haven't really dropped, Tennessee, Georgia, West Virginia, even Iowa to some extent we're looking at. We have a ground game ongoing in various Greenfield states. We're evaluating the opportunities. We run every opportunity through a very disciplined set of screens. The regulatory environment, the ability to build a network, strength of the incumbency and the competition, and we'll pick our spots. Okay. And then maybe just the last one. I know you commented about some of the turnover within Texas. I'm curious the way that the 2 RFPs are evaluated for the STAR plus and the CHIP TANF, what are some of the key differences that you might see there that might not cause kind of a similar outcome to happen in the next RFP award announcement coming up in December? Hilltime nature of this news, it's a very legitimate question and one we're looking at, but I just don't have an answer specifically at this time for you. But obviously, we'll be looking at the similarities and differences and the scoring dynamics for the 2 programs. And we'll take that into consideration as we build our confidence level on winning the second award. Okay. Thanks much. This concludes today's question and answer session and Molina Healthcare's 3rd quarter 2019 earnings conference call. Thank you for attending today's